Japanese Distribution Structure

Distribution in Japan has long been considered the most effective non tariff barrier to the Japanese market. Even though the market is becoming more open as many traditional modes of operation are eroding in the face of competition from foreign marketers, it still serves as an excellent case study for the pervasive impact culture plays on economic institutions such as national distribution systems. The Japanese distribution structure is different enough from its US or European counterparts that it should be carefully studied by anyone contemplating entry. The Japanese system has four distinguishing features: (1) a structure dominated by many small middleman dealing with many small retailers, (2) channel control by manufacturers (3) a business philosophy shaped by a unique culture, and (4) laws that protect the foundation of the system – the small retailer.

High density of middlemen

The density of middlemen retailers and wholesalers in the Japanese market is unparalleled in any western industrialized country. The traditional Japanese structure serves consumers who make small, frequent purchases at small, conveniently located stores. An equal density of wholesaler supports the high density of small stores with small inventories. It is not unusual for consumer goods to go through three or four intermediaries before reaching the consumer – producer to primary, secondary, regional and local wholesaler and finally to retailer to consumer.

While other countries have large numbers of small retail stores, the major difference between small stores (nine or fewer employees) in Japan and the US is the percentage of total retail sales accounted for by small retailers. In Japan, small stores (95.1 per cent of all retail food stores) account for 57.7 percent of retail food sales; in the United States small stores (69.8 percent of all retail food stores) generate 19.2 per cent of food sales. A disproportionate percentage of nonfood sales are made in small stores in Japan as well. In the US, small stores (81.6 per cent of all stores) sell 32.9 percent of nonfood items. In Japan small stores (94.1 percent of all stores) sell 50.4 percent. Such differences are also reflected in Exhibit. Notice the American emphasis on supermarkets, discount food stores and department stores versus the Japanese prevalence of independent groceries and bakers.

As we shall see in a later section profound changes in retailing are occurring in Japan. Although it is still accurate to describe the Japanese market as having a high density of middlemen, the number of small stores is declining as they are being replaced by larger discount and specialty stores. The number of retail stores is down more than 10 percent since 2000, and the number of retail stores with a staff of four or fewer dropped more than 15 percent. These small stores serve an important role for Japanese consumers. High population density, the tradition of frequent trips to the store, an emphasis on service freshness d quality and wholesalers who provide financial assistance, frequent deliveries of small lots, and other benefits combine to support the high number of small stores .

Channel Control

Manufacturers depend on wholesalers for a multitude of services to other members of the distribution network. Financing physical distribution warehousing inventory promotion and payment collection are provided to other channel members by wholesalers. The system works because wholesalers and all other middlemen downstream are tied to manufacturers by a set of practices and incentives designed to ensure strong marketing support for their products and to exclude rival competitors from the channel. Wholesalers typically act as agent middlemen and extend the manufacturer’s control through the channel to the retail level.

Control is maintained through the following elements:

Inventory financing: sales are made on consignment with credits extending for several months.

Cumulative rebates: rebates are given annually for any number of reasons including quantity purchases, early payments achieving sales targets, performing services maintaining specific inventory levels, participating in sales promotions remaining loyal to suppliers maintaining manufacturer’s price policies cooperating and contributing to overall success.

Merchandise returns: All unsold merchandise may be returned to the manufacturer.

Promotional support: Intermediaries receive a host of displays advertising layouts, management education programs, in store demonstrations and other dealer aids that strengthen the relationship between the middlemen and the manufacturer.

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